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Cuba's Crossroads

October 15, 2010

On September 13, the Cuban government made a stunning announcement: Within the next six months, state payrolls will shed half a million workers. Additionally, the government will allow a great expansion of self-employment which it hopes will offset the planned layoffs. The new measures mark a sea change in Cuba, and some observers have speculated that this will mean the end of socialism itself. But the more compelling question is how will the Cuban leadership, who insist they will not embrace capitalism, now define socialism?

On September 13, the Cuban government made a stunning announcement: Within the next six months, state payrolls will shed half a million workers. Additionally, the government will allow a great expansion of self-employment – known in Cuba as cuentapropismo – which it hopes will offset the planned layoffs. The new measures mark a sea change in Cuba. They signal the end of full employment as a right of citizenship and the arrival of a new relationship of the state and private sectors. In a way, they will turn the clock back to the mixed and undoubtedly more vibrant economy of the 1960s, when small, privately-owned shops and kiosks still dotted Cuban streets, until the 1968 “revolutionary offensive” nationalized all small businesses. And while these measures clearly come at a time of great economic hardship for Cuba, there is no indication they are meant to be temporary. A small and growing private sector within the Cuban economy is here to stay.

Yet the Cuban leadership has also insisted it will not embrace capitalism. When the measures were announced last month, some observers speculated it would mean the end of socialism itself. But the more compelling question is, how will the Cuban leadership now define socialism? Indeed, there are currently multiple models for socialism throughout the world, from the market reforms of China and Vietnam to the “twenty-first century socialism” described by Hugo Chávez in Venezuela. The new reforms will undoubtedly reconfigure the relationship between state and citizen, but how exactly the new measures will play out remains to be seen.

Additionally, the new measures raise questions about how the U.S. government will continue to justify the embargo if the Cuban economy is liberalized. For strident advocates of the embargo such as former Senator Jesse Helms, the difference between the Cuban and Chinese economies served to rationalize continued aggression toward the former and mushrooming trade with the latter. “Cuba has undertaken none of the market reforms that China has in recent years; there is no private property, and there are no entrepreneurs with whom to do business,” Helms wrote in a New York Times op-ed in 2000. “Cuba is not China.” The Obama administration has not yet reacted publicly to the announcement of economic reforms on the island. But U.S. policy will inevitably affect the extent to which the Cuban economy can recover.

It is expected that many Cubans will embrace the opportunity to engage in legal self-employment. Currently, the vast majority – 85% – of a total of about 5 million Cuban workers are employed by the state. About 600,000 currently work in the legal private sector, mostly small farmers, and an additional 143,000 Cubans are licensed cuentapropistas, running tiny bike-repair shops or selling craft goods to tourists. An unknown number engage in petty commerce off the books, doing everything from baking birthday cakes for neighbors to running informal taxi services. This is exactly the kind of activity the government now hopes to formalize and tax, in order to bolster state income. Indeed, the new list of activities approved for self-employment licenses are generally restricted to the urban services, such as transportation, the building trades, food services, and housing rentals. The government also hopes that extending the legal private sector will have ripple effects in the economy. For example, the announced changes will now allow cuentapropistas to hire employees who are not family members – a major transformation in the Cuban context.

Nevertheless, the new measures raise many logistical questions. First, will the disbursement of the new cuentapropista licenses have any organized relationship to the planned layoffs? So far, government announcements give the impression that the expansion of the private sector will more or less automatically sop up the jobless. Yet given the vast black market that already exists, it seems highly possible that many of the licenses will merely legalize existing small businesses, or go to other Cubans currently informally employed. Meanwhile, others who are laid off from state jobs may be unable to procure licenses or start businesses for various reasons – for example, the lack of materials or start-up funds. In addition, acquiring licenses in the past has tended to involve political connections and frequently bribes. It is unclear whether the new reforms will include some tighter regulation of that process.

Second, how exactly will the layoffs be decided? A government document lists the ministries and sectors that will be hit, noting that the workers laid off should be those with poor attitudes and job performances, concepts clearly open to wide interpretation. And will these layoffs be followed by others? President Raul Castro announced in August that state payrolls were swollen with a million unnecessary workers, but the new measures are designed to shed only half a million.

Additionally, it is unclear if workers who are laid off will be able to appeal those decisions. If past recessions in Cuba have taught us anything, it is that layoffs tend to exacerbate social inequity. For example, the introduction of some market reforms in the 1990s tended to disproportionately favor light-skinned, better educated Cubans, who managed to maneuver into highly desirable positions, especially in tourism. In fact, following the recent announcement, an association of black Cubans released an open letter warning of the “injustices that could accompany this process,” and asked Cuban workers not to passively accept any actions that might be discriminatory. The fact that the government-aligned Confederation of Cuban Workers (CTC) has already called for workers to react to the new measures with “unity” (read, support) at least implicitly raises the question of whether dismissed workers will have any recourse.

Finally, the new measures bring certain characteristics of the Cuban leadership into sharper focus. Raul Castro is, without doubt, an economic reformer. The changes announced in September culminate a series of economic reforms implemented during the past few years, roughly coinciding with Raul Castro’s rise to power and the significant economic hardship generated by two damaging hurricanes and the global recession. Small, state-owned plots have been parceled out to farmers for their private use; the age of retirement has been extended by five years; with some restrictions, foreigners can now purchase property in areas designated for tourism; Cubans can officially hold more than one job; and the products available on the ration book have progressively declined. Cumulatively, these changes add up to a massive transformation of the economy under Raul’s watch. Whether political changes may follow will partly depend on the actions of the U.S. government. But without question, we are entering a new era in Cuban history, one still to be defined.

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